The same care and consideration you give to finding the right house should be applied to your search for the right mortgage lender. For most home-buyers a major determining factor in selecting a lender is the cost of the mortgage loan. But how do you determine the cost of a mortgage loan?
Money Isn’t Everything
When considering lenders, factor in the level of service they will provide throughout the loan process. I’ll be glad to provide a list of lenders who have successfully helped clients in the past. I also suggest that you ask friends and family in the area for their recommendations.
Shopping for a Mortgage Loan
While most buyers concentrate on interest rates, it is best to look at all the costs associated with a mortgage loan. Mortgage loans include the quoted interest rate, points and closing costs.
More than Just Interest
A number of fees are associated with the mortgage loan, including:
- Appraisal – A carefully documented opinion of value by a licensed, professional appraiser.
- Credit Report - A detailed report of your credit, employment and residence history prepared by a credit bureau.
- Principal – The amount owed on a mortgage which does not include interest or other fees.
- Document Fees, Loan Fees and Processing Fees – Miscellaneous fees charged by the lender.
- Discount Points – Points paid in addition to the loan origination fee to get a lower interest rate. (1 point = 1 percent of loan amount)
- Origination Points – the total number of points paid by the borrower at closing. (1 point = 1 percent of loan amount)
- Interest Rate – A percentage of a loan or mortgage value that is paid to the lender as compensation for loaning funds.
Using the Annual Percentage Rate (APR) to
Compare Mortgage Loans
The APR was designed to help borrowers understand the relative costs of a mortgage loan. The APR takes into account the various fees associated with the loan, which is why it is often higher than the interest rate. Understand that not all lenders calculate a loan’s APR in the same way. That is why this should be only one of the factors used in selecting the best mortgage for you.
Prepayment Penalty Mortgages (PPMs)
These loans restrict your right to prepay part or all of the principal in the loans early years. A prepayment fee is charged by the lender to the borrower who wishes to pay part or all of the loan ahead of the regular schedule. The advantage of a PPM is that they often have a lower interest rate than other mortgages.
Locking-in Interest Rates
Another factor to consider when selecting a lender is whether the lender will lock-in the mortgage’s interest rate and points. Click here to learn more about lock-in options.